It is frequently the case that entrepreneurs, aware of the recognition and prestige that their brand-identified products have achieved in the marketplace, especially as regards high-end products, decide to take measures to provide this valuable business asset with adequate legal and commercial protection.

One of these measures may consist of establishing a system based on the appropriate brand license and implementing a selective distribution network that gives the brand owner not only the power to market its products to those who meet certain qualitative requirements that ensure the prestige and reputation of the brand, but also the right to prosecute those who do not observe these requirements and sell the products in conditions that undermine the brand’s reputation.

Such a case was ruled on in Barcelona Court of Appeal Judgement 654 of 5 April 2019. The Court agreed with the owner of the brand and its licensee and declared an infringement of their brand rights, due to a violation of the selective distribution regime created by its owner and implemented by its licensee in Spain.

In summary, the case can be summed up as follows:

FACTS RELIED ON IN THE LAWSUIT – TRADEMARK LICENCE

• •  The applicants were Laboratoires Expanscience, S.A. – as the owner of the Mustela brand – and the licensee Laboratorios Expanscience, S.A., which distribute high-quality and prestigious skincare products designed for babies, children, future mothers and recent mothers through a selective distribution network recognised throughout Europe.
  • The defendant, Distribuidora Internacional de Alimentación, S.A. (DIA), a well-known Spanish distribution group that is characterized by following discount store commercial formulas and that applies an aggressive price-reduction policy, resells Mustela brand products in Clarel stores – managed by the company Beauty By Dia, S.A. (a company owned by DIA), though it does not form part of the selective distribution network and fails to comply with the marketing conditions established by the applicants, thereby damaging the prestige of the brand.

PROVIDING ADVICE ON THE BRAND LICENSE AND CONDITIONS OF THE SELECTIVE DISTRIBUTION NETWORK

The brand license and selective distribution organized by the applicant and implemented by its licensee imposes a sales system under specific conditions, aimed at achieving excellence in the presentation and marketing of products:

• • The sales space must (i) be used only for health and beauty products, (ii) have competing brands representative of selective distribution, (iii) have its own cash register and (iv) include product display conditions, furniture and decor that allow consumers to be given advisory services and product demonstrations in an appropriate way.
  • The staff of the sales space must hold a university degree from a pharmacy faculty or an equivalent advanced diploma in the field of human health.
  • Stock rotation and product displays should be carried out in a way that ensure the proper preservation of the products.
  • With regard to internet sales, among other conditions, it is necessary to have a physical point of sale, and the website must be exclusively devoted to the sale of hygiene, care and beauty products that are traditionally sold with advice from a pharmacist, in addition to having a secure and updated electronic payment system.

THE COURT’S LEGAL REASONS

Barcelona Court of Appeal concluded that there were legitimate reasons to exclude the principle of the exhaustion of the trademark right recognized under article 36 of the Trademark Act and, consequently, that the owner and licensee could oppose the subsequent marketing of Mustela products in Clarel establishments.

Indeed, based on the expert report provided by the applicants (which reflected the expert’s conclusions arising from inspections carried out at some Clarel stores), the judicial authority, after endorsing most of the conditions of the selective distribution system, considered that the reputation of Mustela as a high-quality brand was undermined, based on the following specific circumstances:

• • Sales space: there is no clearly distinguishable space separated from the rest of the store’s products.
  • Product location: Mustela brand products are not only placed with products of an inferior quality but also with products of a clearly different nature.
  • Conservation, rotation and stock of products: the marketing of products in poor condition and expired products was proven, a fact that showed the absence of adequate product rotation and storage.
  • Online sale: Mustela products were being sold together with other products, not only cosmetics but with all the products being marketed at Clarel establishments, and they were not placed with products of the same range or quality.

For all these reasons, the Provincial Court concluded that the defendants had committed a trademark infringement, since they had offered, marketed and stored Mustela products in conditions that negatively affected the reputation of the brand, putting at risk the investment and protection that the brand owner and its licensees had been developing for years until achieving excellence in their products and a reputation for the brand that distinguished them.

Undoubtedly, in the case examined, the claims of both the owner of the brand and its licensee were legally supported by their effective implantation of a selective distribution system for their products.

Ultimately, this demonstrates the importance of having good advice on brand licensing, where both the owner and licensee can control the reputation and prestige of their products and brands and prevent their deterioration due to the behaviour of third parties.

Post co-written by Andrea Garcés and Arnau Florensa.